#23854-rev-MYREN, Circuit Judge 2006 SD 62 IN THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA * * * * MET LIFE AUTO AND HOME INSURANCE COMPANY, Appellant,

v. GREGORY C. LESTER, Plaintiff and Appellee, and LUKE WETER, Defendant. * * * * APPEAL FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT PENNINGTON COUNTY, SOUTH DAKOTA * * * * HONORABLE JEFF W. DAVIS Judge * * * * ANTHONY P. BOLSON of Beardsley, Jensen & Von Wald Rapid City, South Dakota Attorneys for appellant. GEORGE BEAL of Beal Law Office Attorneys for plaintiff Rapid City, South Dakota and appellee Lester. * * * * CONSIDERED ON BRIEFS ON FEBRUARY 13, 2006 OPINION FILED 7/12/06#23854 MYREN, Circuit Judge [ ¶ 1.] Met Life Auto and Home Insurance Company (Met Life) appeals a judgment that denied subrogation. We reverse. FACTS [ ¶ 2.] On April 20, 2004, Luke Weter (Wet er) backed his car into a brick wall owned by Gregory Lester (Lester). Wete r was insured by USAA Casualty Insurance Company (USAA). Lester had a homeowne r's property insurance policy with Met Life. [ ¶ 3.] Lester sought compensation from Weter's insurer, USAA. While negotiating with USAA, Lester filed a claim with Met Life. Met Life sent an adjuster who estimated that the damage could be repaired for $3,685.18. Met Life subtracted Lester's $1000 deductible an d issued him a check for $2,685.18. On December 20, 2004, Met Life sent a "1 st Notice of Claim" to USAA requesting $2,685.18. [ ¶ 4.] Lester believed his damages were greater than those paid by Met Life. He filed an action in small claims cour t against Weter and his insurer, USAA. Weter removed the action to circuit court. After a settlement conference, Weter and USAA agreed to settle Lester's claim for a total payment of $9,000. Because USAA had received notice of claim for subrog ation from Met Life, the settlement was structured to address that subrogation cl aim. USAA agreed to deposit the amount of the subrogation claim ($2,685.18) with the clerk of courts to be held for distribution as ordered by the court. The remaining $6,314.82 was paid directly to Lester. The circuit court reviewed th e settlement agreement and entered a judgment and order approving settlement and deposit with the clerk. This#23854

-2- judgment and order specifically required Le ster's attorney to serve notice of the deposit upon Met Life. Lester's attorney provided that notice and Met Life filed its objections. Met Life asserted that the circ uit court did not have jurisdiction over it because it was not a named party, but then requested the court disburse the entire amount of the deposit to it. Lester resp onded by arguing that the funds had been deposited with the court under SDCL 15-6-67 and SDCL ch 21-43 and suggested that Met Life should move to intervene if it had concerns over not being a named party. [ ¶ 5.] On July 11, 2005, Weter was dismi ssed from the proceeding. Notice of entry of that order was entered on July 13, 2005. No appeal of that order has been filed. Weter is not participating in this appeal. [ ¶ 6.] On July 11, 2005, the circuit court conducted a motion hearing in which Lester and Met Life both participat ed through their attorneys. Met Life's attorney made the first argument of the day. He squarely addressed the substantive issue of subrogation. He did not claim that the court had no jurisdiction over Met Life. In his responsi ve argument, Lester's attorney noted that Met Life earlier claimed lack of jurisdiction. The circuit court suggested that the parties agree to the jurisdiction of the court so that the merits could be addressed and the matter resolved. Both parties ag reed and no further argument regarding jurisdiction was made to the court. [ ¶ 7.] After listening to the positions of both parties, the circuit court ruled from the bench explaining that this Cour t's ruling in Westfield Ins. Co. v. Rowe, 2001 SD 87, 631 NW2d 175, requires a review of the specific contractual or policy#23854

-3- language to determine the intent of the pa rties. The circuit court concluded that Met Life's policy language fell short of excluding application of the made whole doctrine. The circuit court noted that Lester's claim for damage significantly exceeded the amount paid by Met Life. That significant claim was accepted and paid by USAA, Weter's insurer. [ ¶ 8.] Lester submitted a proposed decisi on. Met Life filed objections. On August 24, 2005, the circuit court signed a decision essentially identical to the proposed decision. On that same day, the circuit court also entered a judgment effectuating the decision. Lester provided Met Life with notice of entry of the judgment on August 25, 2005. Met Life filed a notice of appeal on October 20, 2005. ISSUE ONE [ ¶ 9.] Did the circuit court have personal jurisdiction over Met Life? [ ¶ 10.] At the hearing on July 11, 2005, the circuit court suggested that the parties agree to submit to the jurisdiction of the court so that the matter could be resolved. Met Life agreed and made no fu rther arguments about lack of jurisdiction until after the court ruled that th e $2,685.18 belonged to Lester. [ ¶ 11.] The circuit court clearly had subj ect matter jurisdiction under SDCL 15-6-67 and SDCL ch 21-43. A person may wa ive a lack of personal jurisdiction by submitting to the jurisdiction of the court and pleading on the merits. In re Estate of Green, 516 NW2d 326 (SD 1994); Union Bo nd & Mort. Co v. Brown, 64 SD 600, 269 NW 474 (1936). That is what occurred du ring the July 11, 2005, hearing. Met Life will not be heard now to reassert a la ck of personal jurisdiction after having agreed to submit to the court's jurisdiction.#23854

-4- ISSUE TWO [ ¶ 12.] Did the circuit court correctly interpret the subrogation language of Met Life's policy with Lester? [ ¶ 13.] The right to subrogation is not new in South Dakota. A half century ago, this Court stated: "It is a well settled rule of law that an insurer is entitled to subrogation, either by contract or in equi ty for the amount of the indemnity paid." Parker v. Hardy, 73 SD 247, 248, 41 NW2d 555, 556 ( 1950). Though frequently repeated, that sentence is seldom parsed. Subrogation can arise ou t of two sources. First, the parties can agree to create a cont ractual right of subrogation. This is commonly done in insurance policies. Second, equity can require the creation of subrogation based upon the circumstances, even without a contractual obligation. * [ ¶ 14.] In Julson v. Federated Mut. Ins. Co., 1997 SD 43, ¶12, 562 NW2d 117, 121 this Court implicitly addressed this distinction between equitable subrogation and contractual subrogation with the following language: Federated's contract of insura nce specifically provides for Federated's right to subrogation after making full payment to Julsons as requir ed by its contract. It is undisputed that there is no statement in the policy requiring Julsons to be made whole before subrogation may arise or at the time any settlement is made with any third-party tortfeasors. Thus , there is no question of material fact surrounding the policy language, and the terms are construed according to their plain and ordinary meaning. American Family Mut. Ins. Co. v. Elliot, 523 NW2d 100, 102-03 (SD 1994). The plain language of the

* For a good example of subr ogation created by equity, see Application of Mach, 71 SD 460, 465, 25 NW2d 881, 883 (1947)(" Subrogation has been defined by this court as the mode which equity adopts to compel the ultimate discharge of the debt by him who, in good consci ence, ought to pay it, and to relieve him whom none but the creditor could ask to pay. The right is not dependent upon an agreement, but rests upon principles of natural justice and equity.") See also , Buhl v. McDowell, 60 SD 22, 242 NW 638 (1932).#23854

-5- policy permits Federated to subrogate, file an action, and settle it after making full payment to Julsons. [ ¶ 15.] In short, the language of the Julson insurance policy created a contractual right to subrogation. The na ture of the subrogation was governed by the terms of that policy. There was no ne ed to apply the principles of equitable subrogation. [ ¶ 16.] This Court continued that line of analysis in Westfield , 2001 SD 87 at ¶15, 631 NW2d at 180: We recognized in Julson v. Federated Mut. Ins. Co., 1997 SD 43, ¶12, 562 NW2d 117, 121, that subrogation rights may arise independent of the common law "made whole" doctrine. In Julson , the insurance policy specifically provided the right of subrogation, without any requirement that the insured be made whole. Id. Likewise, Westfield's policy provides: If we make a payment under this policy and: a. The person to or for whom payment was made has a right to recover damages from another, we shall be subrogated to that right

. . . b. The person to or for whom payment is made recovers damages from another, that person shall: (1) hold in trust for us the proceeds of the recovery and (2) reimburse us to the extent of our payment. Rowe can point to no language in the policy or statutory authority which restricts this right of subrogation to instances where the insure d has been made whole. Therefore, Westfield is entitl ed to reimbursement of the $144,660.69 it paid to Rowe.#23854

-6- [ ¶ 17.] Similarly, subrogation in this ca se is created and controlled by the language of the insurance policy between Lester and Met Life. Met Life's subrogation clause in Lester's policy read as follows: You must do everything you can to preserve your rights of recovery. When we have pa id you for your damage or injury, your right to recover from others who caused the damage or injury will belong to us up to the amount we have paid you for the damage or injury, so don't sign any release without our permission. [ ¶ 18.] The circuit court concluded that th is language did not create a right to subrogate in Met Life. This Court conducts a de novo review of the interpretation of contractual language. Gloe v. Union Ins. Co, 2005 SD 30, 694 NW2d 252; Sawyer v. Farm Mut. Ins. Co., 2000 SD 144, 619 NW2d 644. Although the language in Met Life's policy is less legalistic than that in Westfield , it clearly and unequivocally creates a right to subrogation. As in Westfield , Lester can "point to no language in the policy or statutory authority which re stricts this right of subrogation to instances where the insured has been made whol e." 2001 SD 87 at ¶15, 631 NW2d at 180. The language of Lester's insura nce policy clearly establishes contractual subrogation and controls the nature and terms of that subrogation. [ ¶ 19.] This is not a case of equitable subr ogation. "A court of equity is not at liberty to disregard the contract of the parties in this respect where deliberately made and clearly expressed, for equity fo llows the law and will neither make a new contract for the parties nor violate that into which they have freely and advisedly entered." Heikkila v. Ca rver, 378 NW2d 214, 219 (SD 1985) (quoting Jesz v. Geigle, 319 NW2d 481, 483 (ND 1982)). The contract requires that Lester reimburse Met Life for the $2,685.18 it advanced to him.#23854

-7- [ ¶ 20.] Neither party to this action has requested that we reverse our rulings in Julson and Westfield . We are well aware of the public policy arguments advanced in Westfield Insurance Company , Inc. v. Rowe: The South Dakota Supreme Court Rejects the Common Law Made Whole Doctrine on a Property Insurance Subrogation Claim, 47 SDLRev 316 (2002). Any significant alteration in the law of contractual subrogation as suggest ed in that article would be within the province of the South Dakota Legislature. The South Dakota Legislature has not done so in the years since Julson and Westfield were decided and that article was published. [ ¶ 21.] The circuit court is reversed and directed to enter a judgment requiring Lester to pay $2,685.18 to Met Life. [ ¶ 22.] GILBERTSON, Chief Justic e and KONENKAMP and ZINTER, Justices, concur. [ ¶ 23.] MEIERHENRY, Justice, concurs in part and dissents in part. [ ¶ 24.] MYREN, Circuit Judge, for SABERS, Justice, disqualified. MEIERHENRY, Justice (concurring in part and dissenting in part). [¶25.] I agree that Met Life waived the i ssue of personal jurisdiction. I disagree, however, that the circuit cour t erred when it denied subrogation. [¶26.] As we have stated, "[i]t is a well settled rule of law that an insurer is entitled to subrogation, either by contra ct or in equity for the amount of the indemnity paid." Parker v. Hardy, 73 SD 247, 248, 41 NW2d 555, 556 (1950). Even though subrogation may be provided by contract, the concept of subrogation originated in equity. We have explained, "'[s]ubrogation is an equitable doctrine#23854

-8- and depends upon a just resolution of a di spute under a particular set of facts.'" Julson v. Federated Mut. Ins. Co., 1997 SD 43, ¶8, 562 NW2d 117, 120 (citation omitted). Therefore, even if an insured's right of subrogat ion arises from contract, we cannot ignore the equitable origin of that right. [¶27.] Because of its origin in equity, subrogation is subject to the principles of equity. As the Nebraska Supreme Court explained: It is well established that in the absence of an express provision to the contrary, an insurance policy reaffirms the rights of parties relative to subrogation but does not alter the fundamental prin ciples pertaining to subrogation . Therefore, if a contractual right of subrogation is merely the usual equitable right which would have existed in any event in the absence of a contract, equitable principles control subrogation. Cont'l W. Ins. Co. v. Swartzendruber , 253 Neb 365, 370, 570 NW2d 708, 711 (1997) (citations omitted) (emphasis added). One principle to which subrogation is subject is the "made whole" doctrine, which states that an insured's right to subrogation arises only when the insured receives compensation for all of the loss it incurred. See id. at 371, 570 NW2d at 712 ("Under principl es of equity, an in surer is entitled to subrogation only when the insured ha s received, or would receive, a double payment by virtue of an insured's recoveri ng payment of all or part of those same damages from the tort-feasor."). Therefor e, a subrogation clause in an insurance contract does not necessarily preclude ap plication of the "made whole" doctrine. [¶28.] Our cases, however, have not recognized these generally accepted principles of equity. See Westfield Ins. Co. v. Ro we, 2001 SD 87, 631 NW2d 175; Julson , 1997 SD 43, 562 NW2d at 117. In fact, a prominent insurance law commentator deemed our decision in Julson "authority to the contrary" of the#23854

-9- general rule that an insurer is entitled to subrogation only after an insured has been made whole. 16 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 223:134 (3d ed 2000). Both Westfield and Julson refused to invoke the "made whole" doctrine because no contractual prov ision required that the insured be made whole before the insurer sought subrogation. For example, t he provision at issue in Westfield stated: "If we make a payment under this policy and: a. The person to or for whom payment was made has a right to recover damages from another, we shall be subrogated to that right ... b. The person to or for whom payment is made recovers damages from another, that pers on shall: (1) hold in trust for us the proceeds of the reco very and (2) reimburse us to the extent of our payment." 2001 SD 87, ¶15, 631 NW2d at 180. The Co urt concluded that because the insured could "point to no language in the policy or statutory authority which restricts this right of subrogation to instances wher e the insured has been made whole," subrogation was appropriate. Id. [¶29.] This case, however, presents a situation ripe for application of the "made whole" rule. The contract provision at issue here merely restates the equitable principle of subrogation; it bene fits neither the insurer nor the insured. As Met Life stresses, the provision does not condition its right to subrogation on the insureds being made whole. Cf. Julson , 1997 SD 43, ¶12, 562 NW2d at 121 ("It is undisputed that there is no statement in the policy requiring [insureds] to be made whole before subrogation may arise"). On the other hand, neither does the provision give Met Life's subrogation righ t priority over Lester regarding damages recovered from Weter. There is no lang uage requiring payments to be "held in#23854

-10- trust," and there is no language precludi ng the application of the "made whole" doctrine. [¶30.] Because the contract provisio n does not unambiguously abrogate the doctrine, the generally accepted, based-in- equity "made whole" doctrine should apply. Therefore, in the absence of an ex press limitation, the circuit court correctly concluded that the provision "is a little shor t." The "made whole" doctrine precludes Met Life from seeking subrogation until Lester has received full compensation for his damages. [¶31.] The "made whole" doctrine is based on the theory that "where the sum recovered by the insured from the tortfeasor is less than the total loss and thus, either the insured or the insu rer must to some extent go unpaid, the loss should be borne by the insurer for that is a risk the insured has paid it to assume." DeTienne Assocs. Ltd. P'ship. v. Fa rmers Union Mut Ins. Co., 266 Mont 184, 190, 879 P2d 704, 708 (1994); see also Julson , 1997 SD 43, ¶10, 562 NW2d at 121 (quoting a New York Court of Appeals case stated that "[t] he ['made whole'] rule is based upon the nature of the relationship between the insu rer and the insured—if the loss of one of the two must go unsatisfied, it should be the insurer who has b een paid to assume the risk of loss."). This logic is especially relevant here, in light of our well-settled rule of liberal construction in favor of the insured. See Culhane v. W. Nat'l. Mut. Ins. Co., 2005 SD 97, ¶19, 704 NW2d 287, 293. Because the contract is silent regarding the "made whole" doctrine, we shou ld construe it in favor of Lester. The majority's decision does the opposite.#23854

-11- [¶32.] More important, in the absence of a subrogation clause, this Court would undoubtedly allow an insurer to subr ogate based on the equitable principles of subrogation. In the absence of specif ic language to the contrary, the insured should also be allowed to invoke the equi table principles of subrogation—in this case, the "made whole" doctrine. The princi ple of fairness inherent in equity should run to both the insurer and the insured. [¶33.] For these reasons, I would affirm the trial court.